Thursday, June 14, 2007

The U.S. Department of Energy’s EIA production data for March 2007 has just been released – The world’s average daily production of crude and condensate for the month was 73,538,000 barrels per day. EIA crude and condensate data for the past 2.25 years:

2005 average crude and condensate production = 73,791,000
2006 average crude and condensate production = 73,546,000
2007 average crude and condensate production = 73,293,000 Q1 data

EIA data for “All Liquids” (crude, condensate, natural gas plant liquids, ethanol, coal to liquids, tar sands… hence the term “All Liquids”) stands as follows:

2005 All liquids = 84,542,000
2006 All liquids = 84,481,000
2007 All liquids = 84,125,000 Q1 data

Though peak production continues to be May 2005, a decline of less than ½ of 1% year over year is not steep enough, in my opinion, to come to any conclusions other than that the data continues to give additional support to the argument that peak is either here or fast approaching. Market signals support the argument more forcefully, as average prices (incentive to produce more oil comes from the average price of the commodity over a longer period of time, i.e. 3 years, rather than a high price peak lasting only a short period with lower average prices) have remained well above prices that had in the past sent the industry into overdrive to achieve additional production. As we say on Wall Street, “the trend is your friend” (although in this case that saying may ultimately prove untrue). And if the sky-rocketing lease rates for drilling rigs is any indication, and I think that it is, the world’s energy industry complex has been putting in a Herculean effort to increase production - without results.

One must also take into consideration that over 60 billion barrels have been consumed since May ’05 and these 60 billion barrels have been permanently removed from the ultimately recovered oil endowment. We are now over 60 billion barrels closer to peak (or past peak) than we were in May 2005, by mathematical necessity. To give you some sense of scale, it is worth noting that the 60 billion barrels of oil the world consumed in these past 2 years was more than all of the oil the world had consumed prior to WWII. Try and get your mind around that.

A continuation of this trend could best be explained by the “duck analogy”. If it swims like a duck, quacks like a duck, and walks like a duck, and it has feathers… it is probably a duck. We may not be able to see the feathers, yet… but it sure swims, walks, and quacks.

Yours for a better world,

Mentatt (at) yahoo (dot) com

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